Cornerstone OnDemand, Inc. CSOD
Q1 2012 Earnings Call Transcript
Transcript Call Date 05/14/2012

Operator: Good day ladies and gentlemen and welcome to Cornerstone OnDemand's First Quarter 2012 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded.

I’d now like to turn the conference over to Perry Wallack, CFO for Cornerstone OnDemand.

Perry A. Wallack - CFO: Good afternoon, everyone this is Perry Wallack CFO of Cornerstone OnDemand and welcome to our first quarter 2012 earnings conference call. Today's call will begin with Adam providing a brief overview of our company and the first quarter, and then I will review some key financial results for the quarter which ended March 31, 2012. Later we will conduct a question and answer session.

By now you should have received a copy of our press release which was released after the market closed today and furnished with the SEC on Form 8-K. You can also access the press release and the detailed financials on our investor relations website. As a reminder today's call being recorded and a replay will made available following the conclusion of the call.

During the call we will be referring to both GAAP and non-GAAP financial measures. The reconciliation of our GAAP to non-GAAP information is provided in the press release and on our website. All of the financial measures that we will discuss today are non-GAAP unless we state the measure as a GAAP number. Any non-GAAP outlook we provide has not yet been reconciled with the comparable GAAP outlook, because among other things we cannot reliably estimate our future stock based compensation expenses which are dependent on our future stock price.

Our discussion will include forward-looking statements. Such as statements regarding our business strategy demand for our products, certain projected financial results and operating metrics product development, customer satisfaction and retention, customer attrition rate, market or business growth. Our revenue run rate, investment activity in our business, visibility into our business model and results, the effect of capitalized development costs, spending on R&D, professional services and other aspects of our business, our appraisal of our competitors and their products and our ability to compete effectively. Words such as expect, believe, anticipate, plan, illustrate, intent, estimate and other similar words are also intended to identify such forward looking statements. Forward-looking statements involve risks uncertainties and assumptions if any of the risks or uncertainties materializes or any of the assumptions prove incorrect, actual results could differ materially from those expressed or implied by the forward-looking statements we make. These risks, uncertainties, assumptions as well as other information on potential factors that could affect our financial results are included in today's press release, the risk factors section of our most recent Form 10-K, and subsequent periodic filings with the SEC.

With that, I'll turn the call over to Adam.

Adam L. Miller - President and CEO: Thanks Perry and thank you to everyone participating in Cornerstone OnDemand's first quarter earnings call. I am pleased to report that we continue to build upon the momentum of our business in Q1 with another very strong quarter. On a GAAP basis, revenues for the quarter came in at $24 million representing a year-over-year increase of 52%, and bookings came in at $24 million as well representing a year-over-year increase of 67%. We have added 85 new clients during the quarter bringing the size of our global and midmarket client count to nearly 900 which is up 58% year-over-year.

Our client additions in the first quarter were comprised of marquee names in both the private and public sectors including Regis Corporation., The Container Store U.S. Aid and the U.S. Small Business Association, the Denver Public Library, a multibillion-dollar global chemical company and one of the world's preeminent media companies. Our domestic and EMEA sales teams picked up right where they left off at the end of 2011 and finished the quarter strong. While we are very proud of the many new clients we have added our number one priority has always been to ensure the success of our existing clients. From 2002 through 2011, we had an average annual dollar retention rate of approximately 95% and we believe we are on track to achieve this again in 2012.

Our combination of growth in retention helped us increase the size of our user base to over 8 million users in the first quarter, which represents one of the largest SaaS subscriber bases in the world. We also strengthened our relationships with many of our existing clients during the first quarter, with significant up sells to Pep Boys, HeidelbergCement, Manchester Airport, one of the largest hospital operators in the world and one of the largest clothing retailers in the world.

The up sell with Pep Boys is noteworthy because it exemplifies how our product penetration with our clients has become increasingly balanced between learning and our other clouds. Pep Boys began as a learning cloud deal in 2008 and after three successful years with us, they added succession management within the performance cloud in 2011 and in the first quarter of this year, Pep Boys further expanded the performance management footprint within that organization with additional functionality to evaluate the proficiency of new hires.

As our results demonstrate, we have not seen a disruption in our business from the recent consolidation of our market or from the macroeconomic uncertainty in Europe in other parts of the world. I believe there was some concern amongst investors that the entry of ERP players into talent management space, namely SAP and Oracle could limit our ability to compete in the market. For several reasons we believe this has not been the case. Firstly effective talent management has become a strategic priority for organizations around the world, across market sectors and segments. Consequently we believe that many organizations would rather have an innovative best of breed solution and have the latest offering from their legacy ERP provider.

Second in the enterprise segment according to a recent Cedar Crestone survey just 35% of Oracle clients use Taleo and just 40% of SAP clients use SuccessFactors. In fact many Oracle and SAP clients have been using solutions from the recently acquired competitor. We believe that the confusion in the marketplace has created a real opportunity for Cornerstone. Thirdly outside the enterprise segment we believe that the market opportunity has widened for us given the historical lack of success ERP players have had in selling down market.

The continued growth of our midmarket team combined with our recent acquisition of Sonar6, a leading player of talent management solutions for small businesses has helped position Cornerstone well in both of those segments. Finally we believe that the entry of the ERP has also positioned Cornerstone extremely favorably with the global alliance ecosystem. This resulted in yet another solid quarter for alliances team.

As we just announced this morning, we renewed our relationship with ADP after three very successful years extending our resale agreement through 2017. In addition Talent2 continues to help us extend our reach in Asia-Pacific and SunGard Higher Education recently rebranded as Ellucian continues to help us deepen our penetration in higher ed. Also our alliance with Workday continues to gain momentum with our rapidly growing sales teams jointly selling accounts literally around the world. We've completed a productized integration with Workday and having a growing roster of joint clients.

So while our major competitors commit their time and energy to integrating themselves into their new parents. Our team has maintained an unrelenting focus on our core business and on our clients as a result Cornerstone has continued to thrive.

We've also continued to innovate. As many of you know on March 29 we formally launched our Recruiting Cloud making Cornerstone the first pure cloud provider of an organically developed end-to-end talent management solution. When we embarked on this initiative we wanted to create a solution that would be truly differentiated. We believe we have done just that while there are number of ATS or applicant tracking system incumbents in today's market.

Most of these solutions were built over a decade ago and as a result are designed for the way people used to recruit before the rise of social networks. In today's world organizations of all sizes are harnessing the power of social recruiting to more effectively source and select candidates. The Cornerstone Recruiting Cloud is notably social and has been specifically designed to allow organizations to leverage the power of social recruiting. These capabilities are via Cornerstone to ecosystem of strategic alliances and the Recruiting Cloud is able to integrate what the leading social networking sites such as Facebook and LinkedIn.

In addition, while most ATS systems are deployed to recruiters in and hiring managers only. The Cornerstone solution is typically deployed to all employees in an organization. This enables our clients to see a Recruiting Cloud to leverage the social networks of all employees to recruit talent, more effectively promote employee referral programs and seamlessly consider both external and internal candidates for open positions.

Also in the first quarter, we launched the Cornerstone Volunteer Management system, a solution that allows corporations and nonprofit organizations to match volunteers with the opportunities that are most relevant to them. As corporate social responsibility and community involvement continue to become increasingly important to organizations and their employees. The Cornerstone OnDemand foundation's work with the nonprofit community and our dialogue with Cornerstone clients help us to recognize the need for a solution that allows for more effective management volunteer programs. Our Volunteer Management solution helps users track each volunteers pertinent skills, align capabilities and experience to the particular needs of a volunteer opportunity and assign volunteers to relevant positions based on compatibility, timing and desire. While Volunteer Management doesn't necessarily fall within the traditional talent management continuum, we believe that now will. Volunteer is something that Cornerstone has always encouraged of its employees and it is our hope and believe that our Volunteer Management solution will help to significantly enhance the effectiveness of volunteers in communities around the world.

In the last few quarters, we have more than doubled our client count. As a result, the continued expansion of our product suite creates significant incremental up sell opportunity to grow our business. So not only do the new products expand on market opportunity with new clients, but they also drive incremental opportunity within our growing installed base.

Our innovation is not limited to private development. We continue to innovate in our service offerings to ensure the success of our clients. In addition, we’ve recognized opportunity in global markets where we operate and we find innovative ways to expand our footprint to service clients of all sizes and all geographies.

A few months ago, we recognized the disruption in the small business segment being caused by the acquisition of our primary competitors by the ERP companies and our ability to capitalize on that disruption. We also recognize that because our solution is focused on meeting the needs of the larger corporations it would not be ideal fit for the needs of the small business market. So we came up with a way to solve the problem. Find the most innovative talent management company in the small business segment and make them part of the Cornerstone family.

On April 5th, we closed our acquisition of Sonar Limited, which does business as Sonar6. The company offers a state-of-the-art SMB solution for managing performance with a highly intuitive graphical interface and extensive configurability, Sonar6 has gained significant traction with small businesses across geographies and verticals.

Sonar6 also mastered the marketing model for the SMB segment. Minimizing the cost of sale and allowing it to predict the relationship between the marketing investment and sales with a high-degree of accuracy. Combined we now have over 1,250 clients globally across all market segments we serve from global enterprise to mid to large enterprise to now small business. As part of the deal we also gained an innovative product development team, a creative marketing team and overall a very cool company that fits perfectly with Cornerstone’s culture. With their team in the Sonar6 solution we expect to grow our presence within the SMB segment for many years to come.

We have frequently cited 400 million seats as our estimate of the size of the total addressable market in talent management and we believe the SMB segment comprises at least 100 million of these seats. So clearly we believe the opportunity with Sonar6 is large. It is important to note that the Sonar acquisition does not in any way compromise the organic nature of our solution. Sonar6 which is in the process of being rebranded as Cornerstone’s small business or CSB will be sold exclusively to clients with less than 500 employees, while our existing solution will continue to be sold by our middle-market and enterprise sales teams to all clients with 500 or more employees.

The CSB product will not be integrated with the Cornerstone solution. So in summary we are extremely pleased with our first quarter and our continued innovation which we will discuss further in the coming quarters as we continue to push the envelope with our state-of-the-art talent management solution. We continue to sign and grow more key accounts and as our bookings demonstrate the momentum has not slowed down. The expansion of our products and services allows us to grow our addressable market with new and existing clients alike.

Of course this is once again a testament to the tremendous efforts of the incredible team here at Cornerstone OnDemand. Our commitment to our client success and our strong focus on providing a holistic talent management solution empowering people across the entire employee life cycle.

With that I would now like to turn it over the Perry to discuss our financial performance in more detail.

Perry A. Wallack - CFO: Thanks Adam. Before I get to be the financial results of our first quarter 2012. I'd like to remind you that all of the nonrevenue financial figures I will discuss today are non-GAAP unless I state that the measure is a GAAP number. When we discuss revenues these are GAAP results. non-GAAP financial measures exclude certain items that we believe are not good indicators of Cornerstone's current or future operating performance. In periods we will discuss today these items included expenses related to stock-based compensation and related employer taxes, amortization of debt discount and issuance costs and acquisition related costs also during the first quarter 2011 in addition to the items I just mentioned we had changes in the value of preferred stock warrants and accretion related to preferred stock. And amount related to early retirement of debt about. As Adam said we had a terrific quarter the business is growing rapidly revenues and billings continue to grow gross margins are proven year-over-year and investment and growth continue in order to support global demand for our solution. So with that let's discuss our second quarter results.

I will begin by going through our income statement. As Adam that mentioned revenue for the quarter was $24 million representing a year-over-year increase of 52% sequential increase of 7% over the fourth quarter of 2011. Totaling which we find of gross revenue put change in deferred revenue was $24 million for the quarter representing $9.6 million increase or a 67% increase over the first quarter of 2011.

We would like to highlight that our year-over-year bookings growth in Q3 of 2011 was 47% and in Q4 of 2011 was 58%. Hence our bookings growth accelerated in the current quarter over the last two quarters. We would like to note that there were no significant deals that were billed up front during the quarter to cause an anomaly in our bookings. As a reminder, our expected billing terms for direct sale customers is that we bill 100% of the services and 100% of the first year software upfront upon signing, and the future year software fees are billed annually throughout the remaining term of the agreement. Our typical agreement has a term of three years. Our billing terms in Q1 were roughly in line with historical averages.

Our revenue concentration by geography for the first quarter of 2012 remained fairly consistent with the first quarter of 2011 with domestic revenue representing 70% of total revenue and international revenue accounting for the remaining 30%. This is consistent with prior quarters and we believe that we will continue to see additional opportunities to expand our business globally.

Gross margin for the first quarter of 2012 was 73.5% which is comparable to gross margins for the fourth quarter of 2011 of 73.4%. When compared to the same quarter of 2011, gross margins improved by 2.3% from 71.2%. As we said in prior quarters, we believe we will continue to gross margin on an annual basis. However, we do not expect to always have sequential improvements in gross margin from quarter-to-quarter. We will continue to invest in our software, network infrastructure and our implementations and service organization to support our growth, which may affect our gross margin in future periods.

Now, let’s turn to our operating expenses for the quarter, sales and marketing expense was $15.7 million representing a year-over-year increase of $6.1 million or 63.2%. As a percentage of revenue, sales and marketing expenses increased to 65.5% in the first quarter of 2012 from 61.2% in the first quarter of 2011. This increase is principally a result of more headcount across our entire sales and marketing organization as well as higher sales commissions.

When compared to the fourth quarter of 2011, sales and marketing expenses increased by $2.8 million or 21.6%. Similarly this increase was mainly due to increased headcount and sales commissions. R&D expense was $2.9 million representing a year-over-year increase of just $732,000 compared to the same period in 2011.

The year-over-year increase is mainly due to increased headcount. As a percentage of revenue, R&D expenses represented 12.2% of revenue compared to 14% in the same period in 2011. G&A expense was $4 million representing a year-over-year increase of $972,000, when compared to the same period in 2011. The increase in G&A expense during the first quarter of 2012 was mainly attributable to increased headcount in order to support our status as a public company, increased professional fees associated with operating as a public company and increased professional fees, associated with expanding into new geographic regions.

As a percentage of revenue G&A expense represented 16.7% of revenue compared to 19.2% in the same quarter of 2011. Operating loss for the first quarter of 2012 was $5 million compared to $3.7 million in the first quarter of 2011. Net loss for the first quarter of 2012 was $4.9 million or negative $0.10 per share based on weighted average shares outstanding of 49.4 million shares compared to $3.7 million or negative $0.26 per share based on weighted average shares outstanding of 14.5 million shares in the first quarter of 2011.

With regard to cash flow, during the first quarter of 2012 our cash inflows from operations were $3.2 million compared to $1.4 million in the first quarter of 2011 and $4.9 million in the fourth quarter of 2011. We would like to reiterate the seasonality of our business where we typically close a larger number of client agreements in Q3 and Q4 of each year and that collect greater amounts of cash in Q4 and Q1 of each year.

Let me now turn to the balance sheet. Our total cash and cash equivalents were $87.2 million at March 31, 2012 compared to $85.4 million at December 31, 2011. At March 31, 2012 we had approximately $25.1 million in accounts receivable compared to $34.1 million at December 31, 2011 further reflecting the seasonality of our business. In addition our working capital, current assets plus current liabilities excluding deferred revenue was $106.3 million compared to $112.1 million at December 31, 2011. This decrease was mainly driven by a decrease in accounts receivable balances mainly due to higher collections and lower levels of billings in Q1 of 2012 as compared to the immediately preceding quarter. Again due to the seasonality of our business.

Our deferred revenue balance was $55.8 million at March 31, 2012 compared to $55.9 million at December 31, 2011 and $32.4 million at March 31, 2011 a year-over-year increase of $23.4 million for 72%.

Again we'd like to remind you that we typically experienced a reduction in deferred revenue from Q4 to Q1 due to the seasonality of our business.

With respect to headcount we added 185 employees from March 31, 2011 through March 31, 2012 an increase of nearly of 50%. As compared to our headcount as of December 31, 2011 we added 53 employees an increase of 10%. As of March 31, 2012 our total worldwide headcount was 560 employees.

Two of the non-financial metrics that we track are number of clients and number of users served. We ended the year with 891 clients and approximately 8.2 million subscribers reflecting year-over-year increases of approximately 59% and 57% respectively. We added 99 clients in the first quarter versus 119 in the prior quarter.

Finally as a reminder we closed our acquisition of Sonar6 on April 5, 2012 thus none of the above results include amounts from Sonar6. In summary we believe we had a great start to 2012 as evidenced by our year-over-year growth rates 52% growth in revenues, 67% growth in bookings and 129% growth in cash flow from operations. In addition we achieved this growth while our gross margin improved from 71% to 74% and our net loss per share improved from negative $0.26 to negative $0.10 per share over the same quarter in the prior year.

Now I'd like to discuss our outlook for Q2 2012 and the full year of 2012, which falls under the Safe Harbor provisions for forward-looking statements outlined at the start of the call and is based on preliminary assumptions which are subject to change over time.

Given the strength in our business this past quarter for the full the year 2012, we are raising our previous revenue guidance from a range of $112 million to $114 million to a range of $114.5 million to $116.5 million. At the midpoint, this revised range suggests 53% growth over 2011 gross revenue of $75.5 million. Specifically, we are increasing our full year guidance by $2.5 million this increase is driven by one $1.5 million in revenues expected from the acquisition of Sonar6 and $1 million attributable to revenues expected from our organic. Note that the Sonar6 revenues would materially higher as a standalone entity, but because of GAAP purchase accounting rules, we expect to write off a majority of their deferred revenue balance.

For the second quarter of 2012, we currently expect revenues to range from $26 million to $26.5 million. At the midpoint, this range represents 51% growth over the second quarter of 2011 revenues of $17.4 million. It's worth noting that in Q2 of 2011 we achieved 90% bookings growth year-over-year, primarily due to outstanding new customer sales but also due to a higher level of services billings from existing customers.

It is important to remember that the timing of delivery of service projects is often under the control of our large global enterprise customers and this can affect the amount of service billings we achieve in any given period. As such Q2 of 2012 represents something of a tough comparison from a year-over-year single quarter bookings perspective.

With respect to non-GAAP net income or loss, we currently expect a loss for the full year 2012 between $13 million and $15 million. This range implies a non-GAAP earnings per share range of negative $0.26 to negative $0.30 per share, based on a full year weighted average share count of approximately 50 million shares.

Please note that this updated non-GAAP net loss outlook for 2012 takes into account the impact of the expected $1 million increase in revenue attributable to our organic growth as well as the negative impact of approximately $2 million on non-GAAP net loss expected from the acquisition of Sonar6. Again we’d like to note that, this net loss results from the expected write-down of the majority of the Sonar6 deferred revenue.

Lastly turning to cash flow, for the full year 2012 due to our expectation that the Sonar6 acquisition will be approximately neutral with respect to non-GAAP cash flow from operations we are maintaining our previous guidance for non-GAAP cash flow from operations of approximately $7.5 million.

In conclusion, like last year our first quarter marked a solid start to the year and we look forward to continued momentum.

And with that I’d like to turn it back over to Adam.

Adam L. Miller - President and CEO: Thanks, Perry. As our results demonstrated our momentum has not abated. We believe the disruption caused by the recent consolidation of our market has actually widened our window of opportunity and we are capitalizing on that opportunity with our sales, marketing and technology investments. I want to take this opportunity to thank the global Cornerstone team for their vision, teamwork and dedication to our clients’ success. And thank you all for listening. We will now take your questions.

Transcript Call Date 05/14/2012

Operator: Laura Lederman, William Blair.

Laura Lederman - William Blair: I specifically would like to start with multi-product or multiplayer deals and if you look at the quarter, what percentage of them, are multi-platform? And kind of a similar question. If you could talk about (indiscernible) as a percentage of bookings, just because as a sense of opportunity that you expanded on the terms of selling into the installed base?

Adam L. Miller - President and CEO: So in terms of the sale of multiple clouds so we talk about the four clouds, learning, performance, extended enterprise and now recruiting. I would say that we continue to have at least two clouds in 50% of our deals. So some of them see three, some see even four now, but we are seeing multiple products being sold in each of our deals at least 50% of the time. With regard to the shift or the split between up sell and new client acquisition I would say it's been consistent with our historical track record nothing of note as it relates to up sell versus new client acquisitions.

Laura Lederman - William Blair: Final question for me and I'll pass it on. I realize that the opposition (indiscernible) success that just happened relatively easily but what are you getting from customers and do you think you want more business than you would have because of that and I realize stories might be anecdotal but they might present interesting to us.

Perry A. Wallack - CFO: My quick answer would be not yet meaning just now as the market's starting to absorb the news and as you know in the large enterprise segment, these are long sales cycles. So that news is starting to hit in current sales cycles. So I think over this quarter and next quarter. I'll be able to give you a clear answer. But the news has definitely reached the field and we are seeing a lot of opportunities now in the market in particular in the large enterprise space. It was really a three horse race prior to SAP and Oracle coming into the market and what we see today is that it’s a two horse race if it's an Oracle client, its either us or Oracle i.e. Taleo. If it's an SAP client it's us or Success Factors. It's no longer a three horse race.

Operator: Greg Dunham, Goldman Sachs.

Greg Dunham - Goldman Sachs: First question is on pricing, I know you guys rolled out one of the new bundles earlier this year that were some pricing dynamics but one of the (bare) figures out there is that there is pricing pressure in the market because there is perception of tougher competition. Can you just address that concern first? Then a follow-up question on the pace of hiring. When you look at the hiring that you did, kind of 10% sequential increase, was that in line with your expectations?

Adam L. Miller - President and CEO: Yes. Let me take the second one first. We are hiring exactly on plan. We hire roughly the same number of people every month and we've been doing that consistently over the past several months and we are exactly on plan from that perspective. With regard to pricing, as we mentioned on an earlier call, pricing has actually improved in the market and that's very specific prior to Oracle and SAP getting into the space. We had a round of consolidation of the low-cost competitors. They were the ones that most often would start the price wars and those guys getting taken out of the market has actually improved pricing overall for all the vendors in this space including us.

Greg Dunham - Goldman Sachs: Then I guess one follow-up on the hiring question. How has the composition of hiring evolved over the past six months in terms of what type of profile a person that you can hire?

Adam L. Miller - President and CEO: Well, as you can imagine, we are seeing a lot of talent being freed up from our prior competitors because of the consolidation which has raised the bar. I think the other is while there's lot of unemployment, there absolutely is shortage of skilled labor, but if you are on a winning team because of the success we've had in the marketplace, we are able to retract very good talent and I would say the quality of our sales teams and service teams and technology teams has continued to improve over time because of that. So, success breeds success in many ways.

Operator: Mark Murphy, Piper Jaffray.

Mark Murphy - Piper Jaffray: Congrats on the strong results here. I wanted to ask you about the trajectory of your sales headcount. You had noted earlier that, you are trying to roughly double it year-over-year by June of this year. Any preliminary sense on how it could trend beyond that, maybe through June of 2013? Presumably maybe you have the luxury here of being able to digest and assimilate some of those hires more than previous years, and I’m wondering how you’re looking at it?

Adam L. Miller - President and CEO: We’ve been aggressively growing our sales teams over the last three years and we will continue to do that into the future. We haven’t made our final plans yet as it relates to 2013. But I will tell you that we’ve had good success, not just acquiring sales talent but also on boarding them and ensuring that they are productive and we’ll continue to do that around the world. As we’ve said the last year, the growth by team is not consistent. So we will hire more on one team than another. But if you look at it holistically, we’re continuing to aggressively build out our sales force globally.

Mark Murphy - Piper Jaffray: And Perry, you had mentioned that in Q2, you basically have the toughest comp imaginable for billings year-over-year and we’ve known that’s coming for a while. But is there any way you can help us understand, what would you think of as a normal Q2 sequential seasonality for billings maybe for – based on what you are seeing in the current climate?

Perry A. Wallack - CFO: So my (kind) response is, we don’t give guidance on bookings. That said, I think that when you try to look at previous years and you look at seasonality between quarters and you look at relative bookings growth between quarters. You can probably expect things that are in range of those historical seasonalities.

Mark Murphy - Piper Jaffray: Finally at about I wanted to ask you philosophically, where do you stand on the longer-term evolution of the HR software market? Just in terms of what customers prefer? What I’m specifically getting at is I guess the concept of integrated core HR plus talent management in other words what people perceive to be the workday model versus running best-of-breed for talent management and best-of-breed for core HR? Do you think that those are going to be distinct and separate or do you think that the lines are going to blur over time?

Adam L. Miller - President and CEO: I think it depends on the needs of the particular client. Obviously Workday is focused on unified HCM and performance management and we are taking a holistic approach to talent management including learning and recruiting in the extended enterprise. These are different approaches that allowed us to partner with Workday and so allow both of us to compete effectively against both Oracle and SAP. And I think we will be able to continue to do that over time.

Operator: Rick Sherlund, Nomura.

Rick Sherlund - Nomura Research: I wondered if you could just give us a little granularity on the bookings quarter. Revenues were about in line with the Street but the bookings were quite a bit better. Was there anything on the mix of the booking summary? I think I heard you say there was no change in terms, that was similar, any change in – and certainly the long-term was actually less so that was encouraging as well. Any change in the mix of billings service versus product or any other insight you can give us on that?

Perry A. Wallack - CFO: No, there was like said in the prepared remarks, Rick, there was really no anomalies. There were no large deals that were billed multi-years or upfront or anything like that, and the historical average is that the amounts billed upfront were pretty consistent in the quarter, and the mix of revenue across the different teams whether that was direct sales in the U.S., alliances, ADP Europe, federal government, that was all roughly the same as our historical mix.

Rick Sherlund - Nomura Research: Any insight you can give us on enterprise spending. There seems to be controversy out there after Cisco's comments about enterprise spending weakening. Have you seen any evidence of that? I mean certainly not evident in your billings number but I'm curious anecdotally what your observation might be.

Adam L. Miller - President and CEO: Yeah, so we've seen no evidence there. What we seen is a clear shift to the cloud. So organizations that were selling legacy software or hardware are having a more difficult time than some of the cloud providers, and I think we are specifically seeing a shift to talent management being strategic. We are having higher level conversations in the organization. The initiatives that become global instead of departmental, and we are seeing continuous and very clear demand and preference for buying the solution in the cloud instead of buying something that's on premise. So, we've not seen slowdown in our business, and even more particularly we've seen no slowdown in Europe either, where I think the market would assume there would be a slowdown. We are seeing very strong demand throughout EMEA both in the near-term and longer-term.

Rick Sherlund - Nomura Research: The acquisition of Sonar6 oftentimes accompanies non-GAAP numbers exclude the write-down of deferreds in calculating the non-GAAP numbers, that sounds like that's not your intent, you are just going to leave that out, is that correct?

Perry A. Wallack - CFO: Yes, that's our intent.

Operator: Michael Huang, Needham.

Michael Huang - Needham: Just a few questions for you. First of all, in the case of the joint customers and opportunities with Workday, are more of these customers going with Cornerstone for performance or Workday performance and could you provide some color around that?

Adam L. Miller - President and CEO: So, in most of the deals now, where Workday had already been there and they brought us in as a learning solution and they'll be Workday performance in Cornerstone Learning specifically.

Michael Huang - Needham: Just another question kind of around the strength of billings obviously very impressive. Just wanted to get your view on how much of that was driven by improvements in sales productivity versus just driven by that the fact that you've been ramping distribution so aggressively?

Adam L. Miller - President and CEO: It's probably more the ramp. We are seeing some improvements in productivity particularly as it relates to the overall pipeline development. So I think you are going to see more of that in future quarters, but generally, there were no anomalies this quarter. There were no, as Perry mentioned, there were no disproportionately sized deals. There was nothing unusual that happened in the quarter and in fact if anything we had some notably significantly sized deals that did not close in the quarter. They closed after the quarter ended. So you still have the bookings growth.

Michael Huang - Needham: Just last question just on the new recruiting product so, in terms of some of the early opportunities that you are seeing there, are they with new customers, existing customers and enterprise or mid-market? Thanks.

Adam L. Miller - President and CEO: The data program, we did was with existing clients. We are now selling it generally and so, we are selling recruiting in some of the new deals and we’re continuing to up sell it to the installed base. I think we’ll see more installed base sales initially and over time it will probably shift to new sales – new clients.

Michael Huang - Needham: And any particular flavor with respect to kind of large enterprise or mid market around interest (in rhetoric)?

Adam L. Miller - President and CEO: What’s interesting is that we’ve seen it across the board, so we have some global enterprises. We have some mid market companies. We have some non-profits and for profits in a variety of different vertical sectors. There is no consistency about who is buying recruiting. I think what we have seen is being consistent as those that are buying more of the suite, so our clients that are already using learning and performance and the extended enterprise are more likely to also purchase recruiting, at least upfront.

Operator: Scott Berg, Feltl.

Scott Berg - Feltl: Early next quarter I only have one question in particular, that’s on ASPs in the quarter. It looks like your net new customer add were – will come essentially flat year-over-year 85 to 86 by my count here. But your billings came in really strong. Is that a reflections of general ASPs, being stronger year-over-year or is it more customer mix I guess, more larger customers than relatively smaller customers?

Adam L. Miller - President and CEO: I think you see a little bit of the reflection of less pricing competition. So the pricing has improved as I mentioned earlier. The other is we have a very well diversified quarter. I think we had performance across all teams and all segments. So we don’t see any real anomalies from our standard pricing other than overall the tide has risen and we’re seeing good performance across the board. So it wasn’t over weighted in any one particular segment and the same is true as we look ahead at the pipeline. So we’re feeling good about where we are right now.

Operator: Brendan Barnicle, Pacific Crest Securities.

Brendan Barnicle - Pacific Crest: Adam, I just wanted to follow-up on the recruiting question, and specifically whether you guys have been able to pick up any new sales talent out of the consolidation that’s going on in the sector?

Adam L. Miller - President and CEO: Yes. So it’s primarily sales people and service people. We’re not really looking for product development or technology or administrative functions. But we have been picking up specifically sales talent and service talent (to) delivery people.

Brendan Barnicle - Pacific Crest: And then I just want to follow-up on your comments about the macro, specifically it sounds like its being concerned about financial service weakness, you guys have pretty good exposure there. Have you seen anything on that side?

Adam L. Miller - President and CEO: Nothing at all, I mean we continue to sell, in fact it remains one of our best sectors and we’ve seen both up sell and new client acquisition from our financial services clients. A part of that keep in mind is that one of the benefits of Cornerstone is cost savings. So we typically see that the more the system is used the more a company can save. And that’s helped us in macroeconomic uncertain times.

Operator: Thank you. Now I would like to turn the conference back to Adam Miller for concluding remarks.

Adam L. Miller - President and CEO: Thank you all for participating and we look forward to speaking to you again next quarter. Thank you.

Perry A. Wallack - CFO: Thank you.

Operator: Ladies and gentlemen this does conclude your conference you may now disconnect and have a great day.